Wednesday, Nov 14, 2007
Bank of England: Lower consumer spending next year
Times Online: Bank signals at least two rate cuts next year
The Bank of England today delivered a clear signal that interest rates will fall next year, despite a barrage of data suggesting inflationary pressures are building.
Posted by peter @ 03:33 PM (413 views) Add Comment
4 Comments
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1. paul said...
That's because they're planning to include house price inflation next year in the CPI.
It's not coming down any other way after all!
2. Ihopeitgoeswithabang said...
So much for being indepenent and not under the influence of the government.
How do they know what they are going to do next year??? They meet on a regular basis to discuss what to do for a particular moment in time.
Trying to 'talk up' the economy is a dangerous game to start playing.
Surely if the infation figures are the same or worse than they are now what possible justifcation is there for dropping rates.
The economy is over heated and paid for on the whole by rampant house inflation. You cant seriously aim to tackle inflation or any sort without accepting the the economy will take a hit.
Just because Flash Gordon wants to keep looking flash is not reason to abandon economic principles.
3. cornishman said...
Methinks the powers that be may be getting narked by our tittle tattle on this site. The following was posted yesterday in response to the speculation that house prices will be included in the CPI. Notice the last sentence - just to make it look like it's not from a government stooge:
"Young_mark said...
From the breakdown of the Bretton Woods system in the late 1960s until the early 1990s, all UK governments struggled and mostly failed to control inflation. Various policies were tried including a prices and incomes policy (Heath, Wilson, Callaghan), monetary targeting (Thatcher first term), ERM-light (Thatcher second term), ERM (Major). All failed. Ejection from the ERM in 1992, brought a hastily cobbled together attempt at inflation targeting. The targeting mechanism Gordon Brown inherited from the Conservatives was dramatically strengthened in 1997 when, as chancellor, he introduced the current arrangements. The system has been an astonishing success for a variety of reasons, the most important of which is the MPC’s focussed remit. The control of CPI inflation takes precedence over all other considerations – growth, employment and certainly the housing market. There isn’t the slightest possibility of confidence in it being undermined though the manipulation of the CPI – or any other means.
It’s also disingenuous to suggest that housing costs have ever been used for inflation targeting purposes. Before the advent of CPI, the present government and its predecessor used RPIX. The “X” stands for “excluding mortgage interest payments”. The reason for this is very simple. The only weapon the MPC possesses to fight inflation is the interest rate. It would be perverse in the extreme for the inflation target to include the one item which was most directly affected by interest rate rises.
Some people posting also seem to getting confused between housing costs and house prices. Housing costs (mortgage interest payments) are included in the RPI figures. House prices aren’t. So for the vast majority of people (those who don’t move house) housing costs will remain unaffected by falling house prices.
Finally, the reason for changing the CPI basket of goods is to reflect changing spending patterns. This is why it includes petrol, but doesn’t include horse fodder.
By the way, the reason I’m making this post is to inject some realism into the debate. My own view is that the boom is over. Whether it will be followed by a crash or a prolonged period of stagnation is anybody’s guess. Ridiculous conspiracy theories will not enlighten anyone.
Wednesday, November 14, 2007 06:15PM
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4. shipbuilder said...
I replied with -
31. shipbuilder said...
Young_Mark - do you work for the ONS? Perhaps you can answer all our nagging questions on CPI? - how do you explain the % of energy costs being upped in the basket just as those costs start to go down? Can you explain CPI dropping by 0.5% when petrol drops by 1p, but we can have rises of 10 times that without an upward effect? Do you really believe that the basket reflects what people buy? Does it reflect what you buy, what your friends and family buy on a daily basis? Is your personal inflation 2%? Are the stories about food rises of 20%, the rise in Chinese goods, unprecedented rises in metals, commodities and natural resources all fantasy? What about the money supply at 10+ %?
When you talk of 'manipulation' and the 'focused remit of the MPC', how come interest rates were dropped with the sole intention of avoiding a recession, as admitted? Would they have done that if inflation was their sole remit and they were truly independant?
Wednesday, November 14, 2007 10:59PM
Haven't got a reply, though......